It’s coming home
Just perhaps not to England. The propensity for your average Brit to become an overnight expert in something grabbing public attention is remarkable. For example, within a couple of days of the lockdown in March 2020, was there a single one of us that didn’t think we could take on Chris Whitty, Patrick Vallance and still have time to sort Boris out? Well, with World Cup season in full swing it’s time for all 58.6 million of us to channel our inner Thomas Tuchel and declare the unsuitability of a 4-4-2. Yes, I googled both of these and no, you don’t need to inform me they’re wrong.
So, why the tongue in cheek expose of the British approach to the world cup? Has the world of FX come so mundane that I’ve descended to a football pundit? Far from it: the truth is that the World Cup really does matter to the world economy and markets alike. If you’d believe it, it can even have an impact upon the most liquid and vast of all financial markets: foreign exchange. Despite the dominance of the US Dollar to market flows, the impact of the World Cup should be non-negligible. Global GDP is expected to receive a tailwind of $45bn from the sporting event with $19bn of that boost being received by the USA alone. In fact, the only currency not to have felt a tailwind during its hosting of the World Cup was France and its-then Franc in 1998.
At the moment the US Dollar is breaking further and further away from its forecasts and recent ranges. Despite price parity continuing to favour a depreciation of the greenback, relatively strong economic performance versus expectations and changes at the Fed are leading to a price correction higher in the Dollar. Of course, the World Cup won’t be the key driver for the Dollar. However, it certainly won’t undermine its rally. It [cash] is coming home to the USA, and bringing along currency demand along with it.
Discussion and Analysis by Charles Porter
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